Alternative Investment Spotlight: the Coworking Trend

There’s a major shift happening in the world of white-collar work. The days of big corner offices and 9-5 shifts are rapidly coming to an end. These traditions are being replaced by remote workers and the gig economy—two new trends that are also making ripples in the world of commercial real estate. For urban real estate investors, it’s something worth paying attention to.

Without dedicated offices, remote workers, freelancers, giggers, traveling professionals and more need a place to work. This call is being answered by the rise of coworking spaces.

What’s a coworking space?

Coworking spaces are commercial spaces that have been renovated to be a communal place for working professionals. Workers pay a fee to occupy a space for the day or as part of a subscription.

Often, coworking spaces will have both private work areas and open spaces, where professionals from all backgrounds can mingle and work. And, to separate themselves from the competition, many coworking spaces will feature a theme or amenities, such as minimalist design or an in-house café.

The draw of coworking spaces

The chief draw of coworking spaces is their flexibility. Workers who want to get out of the house and into a social work environment can show up whenever they want to a coworking space. A small fee gets them their own space, access to the facilities, networking opportunities through other remote workers and more.

Themed coworking spaces have been popping up in urban areas around the world for the last few years, giving workers plenty of diversity as they acclimate to the life of a digital nomad.

Coworking as an investment opportunity

What makes the coworking trend so appealing as a real estate opportunity is a combination of macro trends and flexibility in the investment.

For starters, coworking spaces are a form of commercial real estate. For a real estate investor looking to dip their feet into a commercial investment, a coworking space is about as simple and straightforward as it gets. Outside of interior renovations, coworking spaces really only demand furnishings and general upkeep! Moreover, investors have the option to rent to a single tenant—a coworking company—or manage the space themselves, hiring someone to oversee the co-working space on-site.

Demand for coworking is on the rise and will only grow. More and more of the workforce becomes flexible or purely mobile each year. These people need a place to work that has the ambiance and utility of a professional environment, with the laid-back accessibility of a coffee shop or library. Coworking is booming because there’s demand for the type of space it offers!

Finally, there’s immense diversity in purposing a commercial space for coworking. In fact, the more unique and original, the better! Investors don’t have to buy property in the heart of an urban epicenter and pay outrageous premiums. Instead, coworking spaces are frequently adapted from sub-prime real estate. An old restaurant, a refurbished retail space, an abandoned distillery—all these themes and more play into the originality of a co-working space and are a draw for professionals.

The downfall of coworking as an investment

The competition for coworking spaces is high and many cities are prone to area-specific saturation. Many of the larger coworking companies—such as global giant WeWork—buy the property they operate, which muscles out smaller local investors who may be trying to get a leg up in their commercial real estate portfolio. Even established coworking spaces can be muscled out by a venture-backed company that’s able to compete on costs and amenities.

Also important to consider is profitability. Coworking spaces thrive when the cost of patronage is negligible. Working professionals will gladly pay a small sum to use the facilities for a day or as part of a monthly membership. However, if those costs rise too high, they’ll flock to the next coworking space, leaving yours. Savvy commercial real estate owners will need to find a happy medium between low fees and low operational costs, so they can profit each month… or at the very least break even.

Follow the trends

Commercial real estate investments are only becoming more valuable as time goes on. Getting in on the next big trend in commercial real estate means putting money into an investment vehicle that’s going to remain in-demand and viable for years to come. And, thanks to the macro trends and consistent demand for coworking spaces, now’s the ideal time to explore these spaces as part of a diverse, properly leveraged commercial real estate investment portfolio.